UK: National Grid preparing for forthcoming "dash for gas"

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22 June 2011, Gas, Nuclear, Solar, Wind

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National Grid is considering additions to the National Transmission System in order to cope with demand from new gas power stations, increased gas imports, and expanded gas storage facilities. The current power gap is helping to drive demand for gas, which would also be used for heating. The green movement will be concerned about this development, because while gas emits roughly 60% less CO2 than coal, to achieve the UK's long-term emissions targets reliance on gas cannot be too heavy.

The problem could be compounded further still if the findings of a recent study conducted by Kent Hawkins are borne out. "Wind Integration Realities" claims that when wind power surpasses 5% of power generated, the frequent cycling up and down of fossil fuel generation actually increases CO2 emissions. Gas is currently the fossil fuel of choice when it comes to supporting intermittent renewables, as it is more flexible.

Due to the recent North Sea tax hikes, Oil & Gas UK believes that up to 25 oil and gas projects could be cancelled, which would result in a greater reliance on Norwegian supply. However, a study from the University of Uppsala in Sweden believes that Norwegian gas production will peak between 2014 and 2020, leading to an increased dependency on Russian gas if the liquefied natural gas (LNG) market cannot pick up the slack. Furthermore, with Germany set to close all of its nuclear power stations by 2022, demand for gas will rise, which will lead to price increases. Gas prices will also rise if the European shale gas revolution - which as of late has been subject to environmental concerns and uncertainty over recoverable reserves - fails to materialize.

Furthermore, the EU economic and political risk landscape is troubled, a state of affairs that will do little to encourage increased competition and investment in infrastructure. Centrica Energy's managing director said: "[UK] ministers might have to act if companies did not push ahead with [UK gas storage] schemes because existing project economics failed to improve." The EU Second and Third Packages still have ongoing issues, and need to be incorporated into the law of member states.

One way or another, National Grid will have to take measures to deal with any "dash for gas," which could have a significant impact on consumers, taxpayers, and the green movement. With financial uncertainty and a power gap to contend with, it could have its work cut out.

Source: Datamonitor

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